Shell‘s role in a billion dollar corruption scandal in
Nigeria poses significant hidden risks for investors, Global Witness said at
the company’s 2015 AGM. The warning comes as the oil major is lobbying the UK
and US authorities to undermine the implementation of new transparency laws
which would consign such secretive deals to history.

The corruption at the heart of the deal deprived the
Nigerian state of over U.S. $1.1 billion, triggered investigations by
authorities in three countries, and could potentially lead to Shell and its
Italian partner Eni losing access to the oil block.

In 2011 Eni and Shell paid $1.1bn for oil block OPL 245,
one of the largest off the coast of Nigeria (2). The money should have ended up
in state coffers, where it is badly needed – the amount in question is
equivalent to two thirds of the Nigerian healthcare budget (3).

Instead, the payment was made by Shell and Eni to the
Nigerian government, who had a separate agreement to pay the same amount to
Malabu Oil and Gas, a company controlled by convicted money-launderer and
former oil minister Chief Dan Etete (4). As Etete had awarded the oil block to
Malabu Oil and Gas whilst oil minister during the regime of the corrupt
dictator General Abacha, he had effectively given himself one of the most
lucrative oil blocks in Nigeria.

“This is a billion dollar bombshell, Shell’s shareholders
deserve to know the stakes. This deal is being investigated in several
countries and could be cancelled altogether. Such shady deals expose investors to risks they do not know about,
entrench corruption and rob people in countries like Nigeria of money they
badly need for things like schools and hospitals. So why is Shell blocking laws
that would bring such payments into the open? What else have they got to hide?”
said Simon Taylor, Director of Global Witness.

Shell and Eni deny paying any money to Malabu Oil and
Gas. However, High Court proceedings and other evidence seen by Global Witness
reveal that Shell and Eni were aware and in agreement that the deal was for the
benefit of Malabu.

This also leaves the companies open to accusations of purchasing
stolen goods and the Nigerian Government of monetising an illegally acquired
state asset on behalf of a convicted felon. If Shell and Eni’s claim that they
purchased the oil block from the Nigerian Government are true, then under the
constitution the US$1.1 billion should have been paid to the Nigerian
Government’s “Federation Account”. It
was not. The alternative, as explained by the broker of the deal, Nigeria’s
Attorney General Adoke, is that the Nigerian Government acted as an “obligor,”
or conduit, to pass the payment from Shell and Eni to Etete’s company Malabu.

In recent correspondence with Global Witness Shell stated
that it disagreed with the premise behind various public statements by Global
Witness about OPL 245 but did not answer specific questions.

Shell
is part of a group of major oil companies attempting to side-step parts of a new, landmark UK law
that was championed by the Prime Minister David Cameron, which would bring such
deals into the open. Shell is also leading a lobby effort to weaken the implementation
of a similar law in the U.S.

Notes:

1) Shell
is lobbying in support of industry-drafted guidelines to implement the UK law
that would allow companies to keep payments worth billions of dollars hidden
from public view, and as a consequence would place firms at risk of violating
the UK law. Shell is also leading a lobby effort to weaken the implementation a
similar law in the U.S., whilst paying lip service to the idea of transparency
and accountability in public.

2) Nigeria’s
House of Representatives found that a figure of 447 million barrels of proven
reserves was used for Shell’s 2003 production sharing agreement for OPL
245. However they also noted that a more
recent study, conducted in 2007 put the
“probable” reserves (P50) at 9.23 billion barrels; Nigerian House of
Representatives, Report by the Ad-Hoc Committee on the transaction involving
the Federal Government and Shell/AGIP companies and Malabu Oil and Gas Limited
in respect of the sale of oil bloc OPL 245, 9 July 2013, p64; Eni has also
stated publicly that OPL 245 contains nearly 500 million barrels of already
discovered oil; Eni SpA, October 6, 2011, “Exploration and Production Update
Conference Call – Final”. More recent
industry press figures cite a variety of figures, for example Upstream’s
comment in 2011 about Shell’s partner Eni, “.. more importantly, the company is
also eyeing a deep-water project in OPL 245 to exploit its Zabazaba and Etan
discoveries, which are believed to hold about 550 million barrels of oil
equivalent resources between them.” http://www.upstreamonline.com/hardcopy/features/article1217826.ece

4) In
July 2013, a British High Court ruled
that Etete was indeed a beneficial owner of Malabu Oil & Gas.

5) On
18 February 2014 the Nigerian House of Representatives voted on the
recommendation of an investigation into the deal, calling for the deal’s
cancellation and criticised the deal for being contrary to the laws of Nigeria,
committing the country to unacceptable indemnities and liabilities while acting
as an obligor, ceding away the Nigerian national interest and censured and
reprimanded Shell and Eni’s subsidiaries for their actions. House of
Representatives Federal Government of Nigeria, Votes and Proceedings, 18
February 2014, p994.